How stores trick you into overspending

Shoppers are being manipulated by pricing, and they're often not even aware of it.

In marketing and retail, the price of a product is often the most important factor in determining the product's success. Sure, quality and appearance play a large role in a customer's decision, but shoppers are being manipulated by the pricing, and they're often not even aware of it.

Ideally, every retailer would determine their costs to provide goods or services, and then tack on a modest surcharge to those goods or services to produce a profit. But in the reality of your local Target or Safeway, shopping is not that simple. Finding the true cost or value of an item is muddled in rewards programs, rebates, discounts on multiple items, etc. More than ever before, retailers and service providers understand that a mix of the following pricing strategies will ultimately produce more profits than selling exclusively with a variable cost-plus pricing method.

Prestige PricingAlso known as "premium pricing," this method capitalizes on societies' generally accepted belief that the higher the price paid, the greater the quality received in return. Most often, the premium price is accompanied by other suggestions of superiority to justify the inflated sticker price. The auto industry is ripe with examples. Nearly every major manufacturer creates a luxury line of automobiles that are founded on the same chassis and engine as lesser-priced models. Nissan uses the Infiniti badge to put a refined touch on mainstream models such as the Pathfinder, and Honda created the Acura label to change the perceptions of standbys such as the Civic. North Americans seem more likely than other nations to pay up for brand status, as Honda and Nissan do not use luxury brands to market their cars in Japan.

Loss LeaderThis strategy seemingly undermines the moneymaking goals of every businessperson, as it dictates that you sell an item at an unprofitable price. However, the reason for making the item so affordable is that the sale of that item will lead to the sale of other high-profit items. Retailers will often create loss leaders to get customers into the store. For example, Walmart occasionally sells everyday goods like toilet paper and diapers at unbeatable prices because they know that customers are likely to buy other items that will produce a profit, and it gives them an opportunity to gain future business from those customers.

The shrewdest loss leaders are products like razors, cell phones and video game consoles. Companies such as Gillette, Sprint and Microsoft are happy to sell razors, cell phones and gaming devices, respectively, at or below cost because each company knows that customers will continually buy highly profitable razor-blade refills, data plans and video games.

Bundling This pricing strategy involves grouping goods or services together to sell them at one price. For the most part, bundling is used either to attract customers by providing a truly discounted offer over the regular cost, or to confuse the customer so that it's hard to determine the true value of the bundle.

An example of a true money-saving bundle might include combining your internet and cable with one provider for a discount. If the combined rate offers identical service to what you were getting with two separate companies, and it does it at a discount, common sense dictates that you sign on for the bundled discount. However, bundling is often used to create a false sense of value, such as when infomercials will proudly announce, "But just wait, there's more!" and begin to toss in "bonus" items with the featured product and then announce an inflated retail value that you of course will only have to pay a fraction of … if you act NOW! Even if the advertised retail value is an accurate reflection of the bundled items' value, you need to value or have use for everything in the bundle. As with any purchase, if your perceived value doesn't reflect the price you paid, you will feel ripped off.

DecoysThis tactic succeeds because it reduces a customer's ability to use logic when making a purchase. Product decoys are meant to promote the purchase of the product the retailer actually wants you to buy. So, when Apple offers the new iPad in six different formats and price points, it isn't to satisfy lovers of 32GB tech as well as 64GB fanboys. Customers see the $829 version and feel that they are getting a good deal if they snap up a $499 version with less than half the memory and no 3G capabilities. In addition, you could argue that the entire line of iPod Touches is a decoy to sell more iPhones, as the lowest end iPod Touch retails for the same price as the new iPhone 4S - $199. Unless you're adverse to data plans or cell phones, it makes sense to buy an iPhone 4S and enjoy all the features of the iPod Touch, plus phone and 3G capabilities.

The Bottom LineThe competition for your money is hotter than ever, and in light of the current economy, your willingness to part with your cash likely hasn't been lower. With that in mind, it's understandable that companies are working hard to employ every retail trick they can imagine. To keep as much of your money as possible, while ensuring as much purchase satisfaction as possible, you need the ability to spot a pricing strategy and assess whether you are truly saving money or just being duped into unnecessary spending.

By Lisa Richwine LOS ANGELES (Reuters) - President-elect Donald Trump will remain an executive producer on the reality TV show "Celebrity Apprentice," new host Arnold Schwarzenegger said on Friday, defending the situation as similar to his own … More »

By Diane Bartz WASHINGTON (Reuters) - Aetna Inc's chief executive denied on Friday that its withdrawal from some Obamacare exchanges was in retaliation for government efforts to halt its merger with Humana Inc , as he sought to convince a federal … More »

Google and the Cuban government have struck a deal giving Cubans faster access to the internet giant's content, two people familiar with the agreement said Friday. Eric Schmidt, chairman of Google's parent company, will formally sign the deal … More »

By David Lawder WASHINGTON (Reuters) - President-elect Donald Trump is stacking his trade transition team with veterans of the U.S. steel industry's battles with China, signaling a potentially more aggressive approach to U.S. complaints of unfair … More »

By Lawrence Delevingne NEW YORK (Reuters) - The Beechwood group of reinsurance companies is in talks to sell most or all of itself after a backlash from some clients due to its relationship with troubled hedge fund manager Platinum Partners, … More »

Twenty-First Century Fox Inc's plan to buy the remaining stake in Sky Plc further insulates the Murdoch family-owned media company from a U.S. television advertising market roiled by sagging ratings, experts said. In a highly-anticipated move, … More »

By Jessica Toonkel, Kate Holton and Pamela Barbaglia NEW YORK/LONDON (Reuters) - Rupert Murdoch's Twenty-First Century Fox Inc has struck a preliminary deal to buy the 61 percent of British pay-TV firm Sky Plc it does not already own for around … More »

Major New York stock indexes hit a second consecutive day of record highs while the Toronto stock market continued its six-day rise, continuing a post-U.S. election rally. On Wall Street, the Dow Jones industrial average recorded its third … More »

By Devika Krishna Kumar NEW YORK (Reuters) - Oil prices rose about 1 percent on Friday on hopes that non-OPEC producers meeting in Vienna over the weekend would agree to output restrictions following limits OPEC announced last week to curb an oil … More »

The 10-year yield on the AP Municipal Bond index was 2.665 per cent , as of 5 p.m. Eastern time Friday. Bond yields and prices move in opposite directions, and prices may have climbed this past week as investors questioned whether the earlier … More »

NEW YORK — U.S. stocks rose for the sixth day in a row Friday as major indexes continued to set records. The biggest gains went to companies that have been mostly left out of the post-election rally, including health care companies and makers of … More »

By Sinead Carew NEW YORK (Reuters) - U.S. stocks closed higher on Friday as more investors piled in on the presidential election rally while the euro continued to weaken after the European Central Bank’s decision a day earlier to extend economic … More »

By David Ljunggren OTTAWA (Reuters) - The Canadian government on Friday tried to negotiate a first-ever national carbon price with the country's 10 provinces, two of which appear increasingly unhappy about the potential financial price. Liberal … More »

Digital advertising will continue to outstrip other media forms this year and next when it comes to bringing in ad dollars, according to a new forecast from media buying company GroupM. Internet advertising is projected to the grow by 18 per cent … More »

Also On Yahoo

Quotes are real-time for NASDAQ, NYSE, and NYSEAmex when available. See also delay times for other exchanges. Quotes and other information supplied by independent providers identified on the Yahoo! Finance partner page. Quotes are updated automatically, but will be turned off after 25 minutes of inactivity. Quotes are delayed at least 15 minutes. All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.